LOS ANGELES (Reuters) - After a decade of watching film production slowly abandon Hollywood, lured away by financial incentives first in Canada, then other U.S. states, California hopes to woo the movies back home.

But some worry that it might be too little, too late after the number of studio feature films shot in California has dropped to less than half of what it was in 2003.

Broadcast and cable television and commercial shoots, which had been more likely than feature films to stay in Hollywood in recent years, are also down significantly, with 44 of 103 pilot episodes shot outside southern California this year.

"In 2008 the worst numbers ever were recorded and the first six months of 2009 show a 50 percent drop from that. That can only be described as a disaster," said Paul Audley, president of FilmLA, the non-profit organization which coordinates film, TV and commercial production in and around Los Angeles.

Film production and its attendant industries generate $38 billion for California's economy and employ nearly 250,000 people, according to Governor Arnold Schwarzenegger's office.

Although it contributes less than 3 percent of state output, movie making also adds value to the tourism and entertainment industries.

Schwarzenegger, former star of "Terminator" who has championed the fight against runaway film production, in February approved California's first-ever incentives. The package is targeted at movies most likely to leave the state and includes a 20 to 25 percent tax credit.

GONE WITH THE WIND

But some say California's incentives may not be enough to compete with the 40 or so other U.S. states offering up to twice the tax credits, often with less red tape.

"(California's) was an incentive package for feature films where the largest budget film you could produce was $75 million, which a lot of people felt didn't go high enough, especially if you are trying to attract tentpoles," said Jack Kyser, chief economist for the Los Angeles Economic Development Corp, referring to the big-budget event movies that can make or break a studio.

As film production has begun to desert California, the economic ripples reach across the state, to countless businesses, directly or indirectly related to the industry, that are already struggling during recessionary times.

In July Hollywood's second-largest prop house, 20th Century Props, closed its doors after 40 years, its owner saying he had fallen victim to runaway production and a 14-week strike by film and television writers that ended in February.

"There are so many shows that have already left," said 20th Century's owner, Harvey Schwartz. "'Ugly Betty' was the first big one to just shut down in California, lay everybody off and move to New York for that 30 percent rebate."

The Culver Studios, a landmark studio where "Gone With the Wind" and "Citizen Kane" were filmed, has also been hit.

Jamie Cella has run The Culver Studios since 2006 and has watched movie production plummet in Hollywood, where just a few years ago 70 percent of all feature films were made.

"It's important, it's a big part of the economy here," Cella said. "These are high-skilled, high wage-earning jobs with people who spend their money. Each dollar that's made in the entertainment industry gets spent 19 times, where in some industries its four or five times."

Cella said Hollywood is taking a wait-and-see attitude with California's incentives, with few willing to predict that the tax credits will be enough to turn the tide.

TERMINATOR SALVATION?

"They wish (the incentives) were bigger but it's seen as a good first step," Cella said, adding that most producers would prefer to shoot at home if they can justify it financially.

"So many feature films now that are green lit, they don't even look at California because of the rebates in other states," Cella said. "So hopefully with this program we can get some of those features to stay home."

Runaway production dates back at least a decade, when Canada began offering incentives in the late 1990s, which combined with the weaker Canadian dollar made shooting there relatively cheap for filmmakers.

An infrastructure has now been built in Vancouver and Toronto, saving studios even more money as they don't have to bring crews and equipment across the border.

About five years ago, U.S. states, including Louisiana, began getting in on the act. Now more than 40 U.S. states offer some form of incentives, most of them greater than those just rolled out in California.

While California's legislators were slow to get into the act, reluctant to give tax breaks to major film studios while other California businesses were suffering, those states haven't been shy about going after film dollars.

In July, for example, New Mexico Governor Bill Richardson was in Los Angeles, hawking his state's 25 percent rebate, loan program and 3,000-worker base to some 30 TV executives.

New Mexico, with its friendly business climate, eager-to-please officials and good climate, has proven particularly tempting to filmmakers.

For example this year's "Terminator Salvation," the latest installment in the franchise that once featured Schwarzenegger in his signature role, was shot in New Mexico to take advantage of the state's 25 percent tax rebate.

Last year's blockbuster "Twilight," the story of a teenage girl who falls in love with a vampire, is set in a small town in Washington but was shot primarily in Oregon. Its sequel, "New Moon," was mostly filmed in Vancouver.

In July, Schwarzenegger approved the first 25 film and TV productions to qualify for incentives, including "Beverly Hills Chihuahua 2" and "Naked Gun 4."

"This is about the makeup artists, the caterers and the countless other small businesses that rely on film and television production to succeed and create jobs for Californians," said Schwarzenegger.

(Editing by Mary Milliken and Cynthia Osterman)

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